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PVF
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CAPITAL CORP.
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ANNUAL REPORT
JUNE 30, 1998
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Table of Contents
Letter to Shareholders................................................1
Special Shareholder Information.......................................3
Selected Consolidated Financial and Other Data........................4
Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................6
Independent Auditors' Report.........................................15
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To Our Shareholders
Fiscal 1998 was another successful year for PVF Capital Corp. We
exceeded our financial goals and objectives and feel much progress was made in
bringing a higher level of service to our customers, shareholders, and the
communities we serve. We are most proud and gratified by the many favorable
responses received from our customers regarding the quality of service provided
by our staff.
In the fiscal year ended June 30, 1998, net income was a record $4.9
million, or $1.20 per share diluted, up 34.8% from fiscal 1997. Return on equity
reached 17.11% and return on assets was 1.23%, both returns among the best as
compared to all other Ohio publicly-traded thrifts. These results reflect the
success of our basic strategy of functioning as a niche lender, providing our
customers a wide range of lending products, collateralized by real estate, that
may not be available to them at larger banks.
For the fiscal year ended June 30, 1998, assets increased by $62
million to $433 million, deposits grew $56 million to $344 million, and
stockholders' equity increased $4.9 million to $32 million. Additionally, we
originated in excess of $250 million in new loans.
In January 1998, Park View Federal Savings Bank opened a full-service
branch office in the rapidly growing city of Chardon, Ohio in Geauga County. In
less than six months, the office has grown to just over $24 million in deposits
and originated an impressive number of loans in the local market area. This
opening brings the number of full-service branch office locations to ten.
Information on the location of each branch office and their hours of service is
provided at the end of this report.
In March 1998, PVF Service Corporation, a subsidiary of PVF Capital
Corp., entered into an option agreement with Cameratta Properties Limited for
the purchase of its 250-acre parcel of land in Solon, Ohio for $5 million. The
option agreement provides for the payment of a $500,000 non-refundable deposit
that requires the buyer to purchase the property within one year or forfeit the
deposit. Completion of the purchase is dependent upon obtaining voter approval
for the planned development project from the residents of the city of Solon. The
project has the full support of the Solon City Council and will appear on the
November 1998 ballot. If the purchase is completed as provided in the contract,
an after-tax gain of approximately $2.5 million is expected to be earned in
fiscal 1999.
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We want to assure you that PVF Capital Corp. has addressed the Year
2000 issue. This issue centers on the inability of today's computer hardware and
software, if left unaltered, to recognize the Year 2000. A project team has been
assembled and a formal plan of action was developed to take all steps possible
to prepare for potential Year 2000 problems.
We have included Special Shareholder Information on the opposite page
that clearly demonstrates the performance of your stock since it became publicly
traded. As we continue to expand and grow, we pledge our continued efforts to
provide the best personal service to our customers, community, and shareholders.
Finally, we invite all shareholders to attend the Annual Meeting of PVF
Capital Corp. on Monday, October 19, 1998, at 10:00 a.m., at the Cleveland
Marriott East in Beachwood, Ohio. As we continue to grow, we look forward to
another successful year of service and dedication to the community, its members,
our shareholders, and our customers.
Sincerely,
/s/ John R. Male
John R. Male
President
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SPECIAL SHAREHOLDER INFORMATION
The performance of PVF Capital Corp. was recognized by The Cleveland
Plain Dealer in its annual published listing of the 100 Top Performing Public
Companies in the State of Ohio. The Board of Directors and management are proud
to inform our shareholders that the Company has made this select listing for the
third consecutive year.
The success and profitability of the Company has resulted in an
annualized return of approximately 43% to an original investor in the stock. For
every 100 shares of stock purchased at $10.00 per share or $1,000.00 at the time
of our initial public offering, the purchaser would own 447 shares of stock with
a per share market value of $16.33 for a total market value of $7,300.00 at June
30, 1998. The following illustration summarizes the lifetime growth in value of
PVF Capital Corp. stock and offers a comparison to all NASDAQ Banks.
LIFETIME GROWTH IN MARKET VALUE OF $100
30 30 30 30 30 30 30
Dec June June June June June June
1992 1993 1994 1995 1996 1997 1998
PVF Capital Corp. $100.00 $144.84 $164.57 $218.39 $330.49 $492.38 $732.29
NASDAQ Banks $100.00 $106.93 $121.61 $137.35 $178.77 $279.47 $387.09
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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
FINANCIAL CONDITION DATA:
At June 30,
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1998 1997 1996 1995 1994
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(in thousands)
Total assets.............................................. $433,279 $373,081 $331,634 $315,432 $238,245
Loans receivable and mortgage-backed
securities held for investment, net..................... 371,949 341,914 278,956 250,244 206,674
Loans receivable held for sale and
mortgage-backed securities available for sale, net...... 1,645 710 18,817 4,451 3,954
Cash equivalents and securities........................... 51,017 23,576 27,884 53,812 22,226
Deposits.................................................. 344,229 288,270 271,045 272,290 197,042
FHLB advances and notes payable........................... 47,384 49,715 30,191 16,800 18,160
Stockholders' equity...................................... 31,209 26,273 22,474 18,818 15,742
Number of:
Real estate loans outstanding.......................... 2,676 2,648 2,527 2,512 2,259
Savings accounts....................................... 25,122 23,190 23,259 24,007 19,007
Offices ............................................... 10 9 9 9 7
OPERATING DATA:
Year Ended June 30,
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1998 1997 1996 1995 1994
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(in thousands except for earnings per share)
Interest income........................................... $ 34,365 $ 30,963 $ 27,761 $ 22,941 $ 17,050
Interest expense.......................................... 19,558 16,561 15,703 12,261 8,113
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Net interest income
before provision for loan losses........................ 14,807 14,402 12,058 10,680 8,937
Provision for loan losses................................. 246 187 417 416 0
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Net interest income
after provision for loan losses......................... 14,561 14,215 11,641 10,264 8,937
Non-interest income....................................... 1,597 1,336 1,747 1,514 1,703
Non-interest expense...................................... 8,851 10,000 7,989 7,177 6,295
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Income before federal income tax expense and
cumulative effect of a change in accounting principle... 7,307 5,551 5,399 4,601 4,345
Federal income taxes...................................... 2,379 1,904 1,613 1,244 1,215
Cumulative effect of a change
in accounting principle................................. 0 0 0 0 755
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Net income................................................ $ 4,928 $ 3,647 $ 3,786 $ 3,357 $ 3,885
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Basic earnings per share.................................. $ 1.25 $ 0.95 $ 0.99 $ 0.88 $ 1.00
========= ========= ========= ========= =========
Diluted earnings per share................................ $ 1.20 $ 0.89 $ 0.93 $ 0.83 $ 0.95
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OTHER DATA:
At or For the Year Ended June 30,
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1998 1997 1996 1995 1994
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(in thousands)
Interest rate spread information:
Average during year................................... 3.38% 3.84% 3.45% 3.67% 4.04%
Average end of year................................... 3.05% 3.90% 3.51% 3.84% 4.25%
Net interest margin....................................... 3.78% 4.22% 3.90% 4.00% 4.30%
Average interest-earning assets to
average interest-bearing liabilities.................... 107.93% 107.93% 108.83% 107.08% 106.64%
Non-accruing loans (> 90 days) and
repossessed assets to total assets...................... 0.76% 1.11% 0.73% 1.14% 1.45%
Stockholders' equity to total assets...................... 7.20% 7.04% 6.78% 5.97% 6.61%
Return on average assets.................................. 1.23% 1.04% 1.19% 1.23% 1.78%
Return on average equity ................................. 17.11% 15.19% 18.43% 19.61% 27.53%
Ratio of average equity to
average assets.......................................... 7.18% 6.84% 6.47% 6.26% 6.46%
Ratio of tangible capital to
adjusted total assets................................... 7.21% 7.34% 7.25% 6.10% 6.37%
Ratio of core capital to
adjusted total assets................................... 7.21% 7.34% 7.25% 6.10% 6.37%
Ratio of total capital to
risk-weighted assets.................................... 10.93% 10.62% 11.42% 10.77% 10.37%
Dividend payout ratio..................................... 0.00% 0.00% 0.00% 8.37% 0.00%
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
PVF Capital Corp. ("PVF" or the "Company") owns and operates Park View Federal
Savings Bank ("Park View Federal" or the "Bank"), its principal and wholly-owned
subsidiary, and PVF Service Corporation, a wholly-owned real estate subsidiary.
Park View Federal has ten offices located in Cleveland and surrounding
communities, including three recently opened branches in Chardon, Bainbridge,
and Macedonia. The Bank's principal business consists of attracting deposits
from the general public through its branch offices and investing these funds in
loans secured by first mortgages on real estate located in its market area,
which consists of Portage, Lake, Geauga, Cuyahoga, Summit, Stark, Medina, and
Lorain Counties in Ohio. The Bank has concentrated its activities on serving the
borrowing needs of local homeowners and builders in its market area by
originating both fixed-rate and adjustable-rate single-family mortgage loans, as
well as construction loans and commercial real estate and multi-family
residential real estate loans. In addition, to a lesser extent, the Bank
originates loans secured by second mortgages, including home equity line of
credit loans secured by single-family residential properties and loans secured
by savings deposits. Lending activities are influenced by the demand for and
supply of housing, competition among lenders, the level of interest rates, and
the availability of funds. Deposit flows and cost of funds are influenced by
prevailing market rates of interest, primarily on competing investments, account
maturities, and the level of personal income and savings in the market area.
FORWARD-LOOKING STATEMENTS
When used in this Annual Report, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties including changes in
economic conditions in the Company's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Company's market area, and competition that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made. The
Company wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
OVERVIEW OF FINANCIAL CONDITION
AT JUNE 30, 1998, 1997, AND 1996
PVF had total assets of $433.3 million, $373.1 million, and $331.6 million at
June 30, 1998, 1997, and 1996, respectively. The primary source of the Bank's
increase in total assets has been its loan portfolio. Net loans receivable and
mortgage-backed securities totaled $373.6 million, $342.6 million, and $297.8
million at June 30, 1998, 1997, and 1996, respectively. The increase of $31.0
million in net loans and mortgage-backed securities at June 30, 1998 resulted
primarily from increases in one-to-four family residential loans, commercial
real estate loans, and one-to-four family residential construction loans of
$13.3 million, $9.6 million, and $6.2 million, respectively. The Bank's current
loans-to-one-borrower limitation was approximately $4.0 million at June 30,
1998. In addition, securities totaled $27.8 million, $14.0 million, and $14.1
million at the fiscal years ended June 30, 1998, 1997, and 1996, respectively.
The increase of $31.0 million in net loans and mortgage-backed securities, $13.8
million in securities, and $13.6 million in cash and cash equivalents at June
30, 1998 were funded by growth of $55.9 million in deposits.
The securities portfolio has been and will continue to be used primarily to meet
the regulatory liquidity requirements of the Bank in its deposit taking and
lending activities. The Bank has adopted a policy that permits investment only
in U.S. government and agency securities or Triple-A-rated securities. The Bank
invests primarily in securities having a final maturity of five years or less
that qualify as regulatory liquidity, federal funds sold, and deposits at the
Federal Home Loan Bank ("FHLB") of Cincinnati. Approximately $25.7 million, or
53.1% of the securities portfolio, has a repricing period of one year or less,
and the Bank has no plans to change the short-term nature of its securities
portfolio.
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The Bank's deposits totaled $344.2 million, $288.3 million, and $271.0 million
at June 30, 1998, 1997, and 1996, respectively. Advances from the FHLB of
Cincinnati amounted to $46.3 million, $47.4 million, and $27.5 million at June
30, 1998, 1997, and 1996, respectively. The opening of a new branch office along
with management's decision to aggressively compete with market savings rates
resulted in an increase in savings deposits of $55.9 million for the fiscal year
ended June 30, 1998.
CAPITAL
PVF's stockholders' equity totaled $31.2 million, $26.3 million, and $22.5
million at the fiscal years ended June 30, 1998, 1997, and 1996, respectively.
The increases were the result of the retention of net earnings.
The Bank's primary regulator, The Office of Thrift Supervision ("OTS") has
implemented a statutory framework for capital requirements which establishes
five categories of capital strength, ranging from "well capitalized" to
"critically undercapitalized." An institution's category depends upon its
capital level in relation to relevant capital measures, including two risk-based
capital measures, a tangible capital measure, and a core/leverage capital
measure. At June 30, 1998, the Bank was in compliance with all of the current
applicable regulatory capital measurements to meet the definition of a
well-capitalized institution, as demonstrated in the following table:
Park View Requirement for
Federal Percent of Well-Capitalized
(in thousands) Capital Assets (1) Institution
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GAAP capital $ 31,727 7.21% N/A
Tangible capital $ 31,727 7.21% N/A
Core capital $ 31,727 7.21% 5.00%
Tier 1 risk-based capital$ 31,727 10.11% 6.00%
Risk-based capital $ 34,324 10.93% 10.00%
(1) Tangible and core capital levels are shown as a percentage of total adjusted
assets; risk-based capital levels are shown as a percentage of risk-weighted
assets.
COMMON STOCK AND DIVIDENDS
The Company's common stock trades under the symbol "PVFC" on the Nasdaq
Small-Cap Market. A 10% stock dividend was issued in August 1995, a
three-for-two stock split effected in the form of a dividend was issued in
August 1996, a 10% stock dividend was issued in September 1997, and a
three-for-two stock split effected in the form of a dividend was issued in
August 1998. As adjusted to reflect all stock dividends and all stock splits,
the Company had 3,990,808 shares of common stock outstanding and approximately
318 holders of record of the common stock at August 31, 1998. OTS regulations
applicable to all Federal Savings Banks such as Park View Federal limit the
dividends that may be paid by the Bank to PVF. Any dividends paid may not reduce
the Bank's capital below minimum regulatory requirements.
The following table sets forth certain information as to the range of the high
and low bid prices for the Bank's common stock for the calendar quarters
indicated.(1)
Fiscal 1998 Fiscal 1997
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High Bid Low Bid High Bid Low Bid
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Fourth Quarter $ 18.83 $ 15.92 $ 10.99 $ 10.15
Third Quarter 16.00 12.67 10.15 9.09
Second Quarter 13.83 12.67 9.24 8.79
First Quarter 14.33 12.08 8.79 7.27
(1) Quotations reflect inter-dealer prices, without retail mark-up, mark-down,
or commission, and may not represent actual transactions. Bid prices have been
adjusted to reflect the previously described stock dividends and stock splits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity measures its ability to fund loans and meet withdrawals
of deposits and other cash outflows in a cost-effective manner. The Company's
primary sources of funds for operations are deposits from its primary market
area, principal and interest payments on loans and mortgage-backed securities,
sales of loans and mortgage-backed securities, and proceeds from maturing
securities and advances from the FHLB of Cincinnati. While loan and
mortgage-backed securities payments and maturing securities are relatively
stable sources of funds, deposit flows and loan prepayments are greatly
influenced by prevailing interest rates, economic conditions, and competition.
FHLB advances may be used on a short-term basis to compensate for deposit
outflows or on a long-term basis to support expanded lending and investment
activities.
The Bank uses its capital resources principally to meet its ongoing commitment
to fund maturing certificates of deposit and deposit withdrawals, repay
borrowings, fund existing and continuing loan commitments, maintain its
liquidity, and meet operating expenses. At June 30, 1998, the Bank had
commitments to originate loans totaling $27.6 million and had $44.6 million of
undisbursed loans in process. Scheduled maturities of certificates of deposit
during the twelve months following June 30, 1998 totaled $211.6 million.
Management believes that a significant portion of the amounts maturing during
fiscal 1999 will be
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reinvested with the Bank because they are retail deposits, however, no
assurances can be made that this will occur.
Park View Federal is required by current OTS regulations to maintain specified
liquid assets of at least 4% of its net withdrawable accounts plus short-term
borrowings. Such investments serve as a source of liquid funds which the Bank
may use to meet deposit withdrawals and other short-term needs. The Bank's most
liquid assets are cash and cash equivalents, which are short-term, highly-liquid
investments with original maturities equal to or less than three months that are
readily convertible to known amounts of cash. The levels of such assets are
dependent upon the Bank's operating, financing, and investment activities at any
given time. Management believes that the liquidity levels maintained are more
than adequate to meet potential deposit outflows, repay maturing FHLB advances,
fund new loan demand, and cover normal operations. Park View Federal's daily
liquidity ratio at June 30, 1998 was 13.4%, and its short-term liquidity ratio
was significantly above regulatory requirements.
ASSET/LIABILITY MANAGEMENT
The Company's asset and liability committee ("ALCO"), which includes senior
management representatives, monitors and considers methods of managing the rate
sensitivity and repricing characteristics of the balance sheet components
consistent with maintaining acceptable levels of changes in net portfolio value
("NPV") and net interest income. Park View Federal's asset and liability
management program is designed to minimize the impact of sudden and sustained
changes in interest rates on NPV and net interest income.
The Company's exposure to interest rate risk is reviewed on a quarterly basis by
the Board of Directors and the ALCO. Exposure to interest rate risk is measured
with the use of interest rate sensitivity analysis to determine the Company's
change in NPV in the event of hypothetical changes in interest rates, while
interest rate sensitivity gap analysis is used to determine the repricing
characteristics of the Bank's assets and liabilities. If estimated changes to
NPV and net interest income are not within the limits established by the Board,
the Board may direct management to adjust its asset and liability mix to bring
interest rate risk within Board-approved limits.
In order to reduce the exposure to interest rate fluctuations, the Company has
developed strategies to manage its liquidity, shorten its effective maturity,
and increase the interest rate sensitivity of its asset base. Management has
sought to decrease the average maturity of its assets by emphasizing the
origination of adjustable-rate residential mortgage loans and adjustable-rate
mortgage loans for the acquisition, development, and construction of residential
and commercial real estate, all of which are retained by the Bank for its
portfolio. In addition, all long-term, fixed-rate mortgages are underwritten
according to guidelines of the Federal Home Loan Mortgage Corporation ("FHLMC")
and the Federal National Mortgage Association ("FNMA") and are either swapped
with the FHLMC and the FNMA in exchange for mortgage-backed securities secured
by such loans which are then sold in the market or sold directly for cash in the
secondary market.
Interest rate sensitivity analysis is used to measure the Company's interest
rate risk by computing estimated changes in NPV of its cash flows from assets,
liabilities, and off-balance sheet items in the event of a range of assumed
changes in market interest rates. NPV represents the market value of portfolio
equity and is equal to the market value of assets minus the market value of
liabilities, with adjustments made for off-balance sheet items. This analysis
assesses the risk of loss in market risk sensitive instruments in the event of
an immediate and sustained 1 and 2 percent increase or decrease in market
interest rates. The Bank's Board of Directors has adopted an interest rate
PROFILE OF INTEREST SENSITIVE ASSETS
(3.0%) Fixed-rate other mortgage loans
(5.8%) Fixed-rate single-family mortgage loans
(36.1%) Adjustable-rate other mortgage loans
(42.1%) Adjustable-rate single-family mortgage loans
(4.8%) Overnight Fed Funds
(0.7%) Adjustable-rate mortgage-backed securities
(6.6%) Investment securities 60 months or less
(0.9%) Consumer loans
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PROFILE OF INTEREST SENSITIVE LIABILITIES
(54.9%) CD's 12 months or less
(3.5%) CD's 25 to 36 months
(13.6%) CD's 13 to 24 months
(1.0%) CD's over 36 months
(0.3%) Notes Payable 12 months or less
(8.1%) FHLB Advances over 36 months
(1.3%) FHLB Advances 13 to 36 months
(2.6%) FHLB Advances 12 months or less
(8.3%) Passbook accounts
(6.4%) Transaction accounts
risk policy which establishes maximum decreases in the NPV of 5% and 10% in
the event of an immediate and sustained 1 and 2 percent increase or decrease in
market interest rates. The following table presents the Bank's projected change
in NPV for the various rate shock levels at June 30, 1998. All market risk
sensitive instruments presented in this table are held to maturity or available
for sale. The Bank has no trading securities.
(in thousands)
Change in Market Value of Dollar Percentage
Interest Rates Portfolio Equity Change Change
-------------- ---------------- ------ ------
+200 $ 44,137 $ (624) (2)%
+100 44,997 186 0
0 44,811
-100 44,146 (665) (1)
-200 43,190 (1,621) (4)
The above table indicates that at June 30, 1998, in the event of either an
immediate and sustained increase or decrease in prevailing market interest
rates, the Bank's NPV would not be materially impacted, but would be expected to
decrease slightly. This is the case, because of the current flatness of the
yield curve along with the borrowers' and/or lenders' ability to prepay or
extend the terms of loans, investments, deposits, and borrowings. The Bank
carefully monitors the maturity and repricing of its interest-earning assets and
interest-bearing liabilities to minimize the effect of changing interest rates
on its NPV. At June 30, 1998, the Bank's estimated changes in NPV were within
the targets established by the Board of Directors.
NPV is calculated by the OTS using information provided by the Bank. The
calculation is based on the net present value of discounted cash flows utilizing
market prepayment assumptions and market rates of interest provided by Bloomberg
quotations and surveys performed during the quarter ended June 30, 1998, with
adjustments made to reflect the shift in the Treasury yield curve between the
survey date and the quarter-end date.
Computation of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments, and deposit decay, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions the Bank may undertake in response to changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented in the
computation of NPV. Actual values may differ from those projections set forth in
the table, should market conditions vary from assumptions used in the
preparation of the table. Certain assets, such as adjustable-rate loans, which
represent the Bank's primary loan product, have features which restrict changes
in interest rates on a short-term basis and over the life of the asset. In
addition, the proportion of adjustable-rate loans in the Bank's portfolio could
decrease in future periods if market interest rates remain at or decrease below
current levels due to refinance activity. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in the table. Finally, the ability of many
borrowers to repay their adjustable-rate debt may decrease in the event of an
interest rate increase.
In addition, the Bank uses interest rate sensitivity gap analysis to monitor the
relationship between the maturity and repricing of its interest-earning assets
and interest-bearing liabilities, while maintaining an acceptable interest rate
spread. Interest rate sensitivity gap is defined as the difference between the
amount of interest-earning assets maturing or repricing
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within a specific time period and the amount of interest-bearing liabilities
maturing or repricing within that time period. A gap is considered positive when
the amount of interest-rate-sensitive assets exceeds the amount of
interest-rate-sensitive liabilities, and is considered negative when the amount
of interest-rate-sensitive liabilities exceeds the amount of
interest-rate-sensitive assets. Generally, during a period of rising interest
rates, a negative gap would adversely affect net interest income, while a
positive gap would result in an increase in net interest income. Conversely,
during a period of falling interest rates, a negative gap would result in an
increase in net interest income, while a positive gap would negatively affect
net interest income. Management's goal is to maintain a reasonable balance
between exposure to interest rate fluctuations and earnings. The following table
summarizes the Company's interest rate sensitivity gap analysis at June 30,
1998.
Within 1-3 3-5 greater than
(in thousands) 1 Year Years Years 5 Years Total
- --------------------------------------------------------------------------------------------------------------------------
Total interest-rate-sensitive assets......................... $206,003 $101,571 $ 76,146 $ 38,443 $422,163
Total interest-rate-sensitive liabilities.................... 221,560 106,027 14,956 42,808 385,351
Periodic GAP................................................. (15,557) (4,456) 61,190 (4,365) 36,812
Cumulative GAP............................................... (15,557) (20,013) 41,177 36,812
Ratio of cumulative GAP to total assets...................... (4.0)% (5.0)% 9.1% 8.5%
RESULTS OF OPERATIONS
GENERAL
PVF Capital Corp.'s net income for the fiscal year ended June 30, 1998 was $4.9
million, or $1.25 basic earnings per share and $1.20 diluted earnings per share,
as compared to $3.6 million, or $0.95 basic earnings per share and $0.89 diluted
earnings per share for fiscal 1997, and $3.8 million, or $0.99 basic earnings
per share and $0.93 diluted earnings per share for fiscal 1996. All per share
amounts have been adjusted for stock dividends and stock splits.
Net income for the current year increased by $1.3 million from the prior fiscal
year and exceeded net income for fiscal 1996 by $1.1 million. In the first
quarter of fiscal 1997, the Bank recorded a one-time special assessment to
recapitalize the Savings Association Insurance Fund ("SAIF") that required
SAIF-insured savings institutions to pay 65.7 cents for every $100 of deposits.
This assessment was charged against earnings in fiscal 1997 and had an after-tax
impact of $1.1 million.
NET INTEREST INCOME
Net interest income amounted to $14.8 million for the fiscal year ended June 30,
1998, as compared to $14.4 million and $12.1 million for the fiscal years ended
June 30, 1997 and 1996, respectively. The increase in net interest income of
$0.4 million and $2.3 million from the fiscal year ended June 30, 1997 to 1998
and from the fiscal year ended June 30, 1996 to 1997, respectively, is due to
changes in interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities. Tables 1 and 2 provide information as to change in
the Bank's net interest income.
Table 1 sets forth certain information relating to the Bank's average
interest-earning assets (loans and investments) and interest-bearing liabilities
(deposits and borrowings) and reflects the average yield on assets and average
cost of liabilities for the periods and at the dates indicated. Such yields and
costs are derived by dividing interest income or interest expense by the average
daily balance of assets or liabilities, respectively, for the periods presented.
During the periods indicated, non-accrual loans are included in the net loan
category.
This table also presents information for the periods indicated and at June 30,
1998 with respect to the difference between the weighted-average yield earned on
interest-earning assets and weighted-average rate paid on interest-bearing
liabilities, or "interest rate spread," which savings institutions have
traditionally used as an indicator of profitability. Another indicator of an
institution's net interest income is its "net yield on interest-earning assets,"
which is its net interest income divided by the average balance of net
interest-earning assets. Net interest income is affected by the interest rate
spread and by the relative amounts of interest-earning assets and
interest-bearing liabilities.
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Table 1
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS AND RATES
FOR THE YEAR ENDED JUNE 30,
1998 1997 1996
------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
(in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans................................... $361,308 $ 32,500 9.00% $317,453 $ 29,419 9.27% $272,768 $ 25,572 9.38%
Mortgage-backed securities.............. 2,439 155 6.36 3,832 285 7.44 3,961 269 6.79
Securities and other interest-earning assets 27,918 1,710 6.13 19,706 1,259 6.39 32,732 1,920 5.87
-------- -------- -------- -------- -------- --------
Total interest-earning assets...... 391,665 34,365 8.77 340,991 30,963 9.08 309,461 27,761 8.97
-------- -------- --------
Non-interest-earning assets............. 9,291 9,773 7,775
-------- -------- --------
Total assets....................... $400,956 $350,764 $317,236
======== ======== ========
Interest-bearing liabilities:
Deposits................................ $321,039 $ 17,062 5.31 $272,341 $ 13,957 5.12 $270,975 $ 14,889 5.49
FHLB advances........................... 40,240 2,351 5.84 41,083 2,367 5.76 10,638 546 5.13
-------- -------- ---- -------- -------- ---- -------- -------- ----
Notes payable........................... 1,604 145 9.04 2,510 237 9.44 2,746 268 9.80
Total interest-bearing liabilities. 362,883 19,558 5.39 315,934 16,561 5.24 284,359 15,703 5.52
-------- ---- -------- ---- -------- ----
Non-interest-bearing liabilities........ 9,267 10,825 12,337
-------- -------- --------
Total liabilities ................. 372,150 326,759 296,696
Stockholders' equity...................... 28,806 24,005 20,540
-------- -------- --------
Total liabilities and stockholders'
equity $400,956 $350,764 $317,236
Net interest income....................... $ 14,807 $ 14,402 $ 12,058
======== ======== ========
Interest rate spread...................... 3.38% 3.84% 3.45%
==== ==== ====
Net yield on interest-earning assets...... 3.78% 4.22% 3.90%
==== ==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities. 107.93% 107.93% 108.83%
====== ====== ======
Table 2 illustrates the extent to which changes in interest rates and shifts in
the volume of interest-related assets and liabilities have affected the Bank's
interest income and expense during the years indicated. The table shows the
changes by major component, distinguishing between changes relating to volume
(changes in average volume multiplied by average old rate), changes relating to
rate (changes in average rate multiplied by average old volume), and changes
relating to rate and volume (changes in average rate multiplied by changes in
average volume).
As is evidenced by these tables, interest rate changes unfavorably affected the
Bank's net interest income for the fiscal year ended June 30, 1998, while
favorably affecting the Bank's net interest income for the fiscal year ended
June 30, 1997. Due to the long-term nature of the Bank's loan portfolio and
short-term nature of its deposit portfolio, along with decreasing interest rates
and a relatively flat yield curve during much of the fiscal year ended June 30,
1998, the Bank experienced a decrease of 46 basis points in its interest rate
spread to 3.38% for fiscal 1998 from 3.84% for fiscal 1997, while during fiscal
1997 its interest rate spread increased 39 basis points from 3.45% for fiscal
1996. These changes in average interest rate spread resulted in a decrease in
net interest income for the year ended June 30, 1998 of $1.5 million due to
interest rate changes and an increase of $845,000 for the year ended June 30,
1997.
Net interest income was favorably affected by volume changes during the two
years ended June 30, 1998 and 1997. Accordingly, net interest income grew by
$2.1 million and $1.8 million due to volume changes for the fiscal years ended
June 30, 1998 and 1997, respectively. Changes attributable to both rate and
volume impacted net interest income negatively during the fiscal years ended
June 30, 1998 and June 30, 1997.
11
14
The rate/volume analysis illustrates the effect that volatile interest rate
environments can have on a financial institution. Increasing interest rates or a
flattening yield curve will both have a negative effect on net interest income,
while decreasing interest rates or a steepening yield curve will both have a
positive effect on net interest income.
Table 2 YEAR ENDED JUNE 30,
--------------------------------------------------------------------------------
1998 vs. 1997 1997 vs. 1996
--------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
-------------------------------------- -------------------------------------
Rate/ Rate/
(in thousands) Volume Rate Volume Total Volume Rate Volume Total
------------------------------------- -------------------------------------
Interest income:
Loans........................... $ 4,064 $ (864) $ (119) $ 3,081 $ 4,190 $ (295) $ (48) $ 3,847
Mortgage-backed securities...... (104) (41) 15 (130) (9) 26 (1) 16
Securities and other
interest-earning assets....... 525 (52) (22) 451 (764) 170 (67) (661)
--------- --------- -------- -------- --------- ------- ------- --------
Total interest-earning assets 4,485 (957) (126) 3,402 3,417 (99) (116)
----------------------------------------------------------- ---------
3,202
Interest expense:
Deposits........................ 2,496 517 92 3,105 75 (1,001) (5) (931)
FHLB advances................... (49) 34 (1) (16) 1,561 67 193 1,821
Other borrowings................ (86) (10) 4 (92) (23) (10) 1 (32)
------------------------------ ---------- ---------- --------- ------------------
Total interest-bearing
liabilities............... 2,361 541 95 2,997 1,613 (944) 189 858
-------------------------------------------------- --------- -------- ---------
Net interest income............... $ 2,124 $(1,498) $ (221) $ 405 $ 1,804 $ 845 $ (305) $ 2,344
======= ======= ====== ======== ======= ======== ====== =======
PROVISION FOR LOAN LOSSES
Due to the increased risks associated with commercial real estate, construction,
and land loans, the Bank carefully monitors its loan portfolio and establishes
levels of unallocated and specific reserves for loan losses. Provisions for loan
losses are charged to earnings to bring the total allowances for loan losses to
a level considered adequate by management to provide for probable loan losses,
based on prior loss experience, volume and type of lending conducted by the
Bank, industry standards, and past due loans in the Bank's loan portfolio. The
Bank's policies require the review of assets on a regular basis, and the Bank
appropriately classifies loans as well as other assets if warranted. The Bank
establishes specific provisions for loan losses when a loan is deemed to be
uncollectible in an amount equal to the net book value of the loan or to any
portion of the loan deemed uncollectible. A loan that is classified as either
substandard or doubtful is assigned an allowance based upon the specific
circumstances on a loan-by-loan basis after consideration of the underlying
collateral and other pertinent economic and market conditions. In addition, the
Bank maintains unallocated allowances based upon the establishment of a risk
category for each type of loan in the Bank's portfolio.
The Company uses a systematic approach in determining the adequacy of its loan
loss allowance and the necessary provision for loan losses, whereby the loan
portfolio is reviewed generally and delinquent loan accounts are analyzed
individually, on a monthly basis. Consideration is given primarily to the types
of loans in the portfolio and the overall risk inherent in the portfolio, as
well as, with respect to individual loans, account status, payment history,
ability to repay and probability of repayment, and loan-to-value percentages.
After reviewing current economic conditions, changes in delinquency status, and
actual loan losses incurred by the Company, management establishes an
appropriate reserve percentage applicable to each category of loans, and a
provision for loan losses is recorded when necessary to bring the allowance to a
level consistent with this analysis. Management believes it uses the best
information available to make a determination with respect to the allowance for
loan losses, recognizing that future adjustments may be necessary depending upon
a change in economic conditions.
During 1998, the Company experienced growth in the loan portfolio of $28.5
million, or 8.3%, while
12
15
maintaining the composition of the loan portfolio. In addition, the level of
impaired loans decreased from $4.1 million to $3.3 million, while allowance
related to impaired loans increased from $69,000 to $196,000. The decrease in
the level of impaired loans caused the percentage of impaired loans to allowance
for loan losses to increase from 65% to 82%. Net charge-offs increased from
$77,000 in 1997 to $234,000 in 1998. Therefore, taking into consideration the
growth of the portfolio, the lower level of impaired loans, as well as the
higher level of net charge-offs and the overall performance of the portfolio,
the Company provided $246,000 of additional provision to maintain the allowance
at a level deemed appropriate of $2.7 million.
During 1997, the Company experienced growth in the loan portfolio of $52.6
million, or 18.2%, while maintaining the composition of the loan portfolio.
Although the level of impaired loans increased from $2.4 million to $4.1
million, the allowance related to impaired loans decreased from $394,000 to
$69,000 due to the adequate underlying value of impaired loans. Therefore,
despite the fact that the level of impaired loans increased, causing the
percentage of impaired loans to allowance for loan losses to decrease from 109%
to 65%, this did not result in a need to increase the allowance significantly.
Net charge-offs also decreased from $254,000 in 1996 to $77,000 in 1997.
Therefore, taking into consideration the growth of the portfolio, as well as the
low level of net charge-offs and the overall performance of the portfolio, the
Company provided $187,000 of additional provision to maintain the allowance at a
level deemed appropriate of $2.7 million.
NON-INTEREST INCOME
Non-interest income amounted to $1.6 million, $1.3 million, and $1.7 million for
the fiscal years ended June 30, 1998, 1997, and 1996 respectively. The
fluctuations in non-interest income are due primarily to fluctuations in income
derived from mortgage banking activities and fee income on deposit accounts.
Income attributable to mortgage banking activities consists of loan servicing
income, gains and losses on the sale of loans and mortgage-backed securities,
and market valuation provisions and recoveries. Income from mortgage banking
activities amounted to $869,000, $663,000, and $925,000 for the fiscal years
ended June 30, 1998, 1997, and 1996, respectively. The increase in income from
mortgage banking activities of $206,000 from the fiscal year ended June 30, 1997
to 1998 is primarily due to an increase in net profit realized on the sale of
loans and mortgage-backed securities. Other non-interest income amounted to
$727,000, $673,000, and $822,000 for the fiscal years ended June 30, 1998, 1997,
and 1996, respectively. Changes in other non-interest income are the result of
service and other miscellaneous fee income, income realized on the sale of
assets and investments, and the disposal of real estate owned properties.
NON-INTEREST EXPENSE
Non-interest expense amounted to $8.9 million, $10.0 million, and $8.0 million
for the fiscal years ended June 30, 1998, 1997, and 1996, respectively. The
principal component of non-interest expense is compensation and related benefits
which amounted to $4.5 million, $4.4 million, and $4.1 million for the fiscal
years ended June 30, 1998, 1997, and 1996, respectively. The increase in
compensation for the fiscal years ended June 30, 1998 and 1997 is due primarily
to growth in the staff, the opening of a new branch in fiscal 1998, employee
401K benefits, a compensation incentive plan for both management and loan
originators, and inflationary salary and wage adjustments to employees. Office
occupancy totaled $1.6 million, $1.6 million, and $1.4 million for the fiscal
years ended June 30, 1998, 1997, and 1996, respectively. The increased occupancy
expense is attributable to maintenance and repairs to office buildings, and
costs attributable to opening and operating additional branch offices. Other
non-interest expense totaled $2.7 million, $4.0 million, and $2.4 million for
the fiscal years ended June 30, 1998, 1997, and 1996, respectively. The increase
in other non-interest expense of $1.6 million from the fiscal year ended June
30, 1996 to 1997 is attributable to the previously mentioned SAIF assessment.
Changes in other non-interest expense are the result of advertising,
professional and legal services, regulatory and insurance expenses, and
franchise tax expense.
FEDERAL INCOME TAXES
The Bank's federal income tax expense was $2.4 million, $1.9 million, and $1.6
million for the fiscal years ended June 30, 1998, 1997, and 1996, respectively.
Due to the availability of tax credits for the fiscal year ended June 30, 1998
and statutory bad debt deductions for the fiscal year ended June 30, 1996, and
other miscellaneous deductions, the Bank's effective federal income tax rate was
below the expected tax rate of 35% with an effective rate of 33%, 34%, and 30%
for the fiscal years ended June 30, 1998, 1997, and 1996, respectively.
YEAR 2000
Park View Federal realizes the challenges of the Year 2000 issue. In compliance
with regulatory guidelines, a project team was assembled to review the effects
the century
13
16
change has on current systems and to assess the potential risks that it
presents. A formal plan of action was developed to address and correct this
issue and has been approved by the Bank's Board of Directors with the full
support of senior management. An inventory of internal systems, both computer
and non-computer related, was completed in this process. Relationships with
third-party vendors were also analyzed. Potential weaknesses were then
documented and prioritized as to their effect on critical business functions.
Our major software supplier has dedicated tremendous resources to help in
addressing this issue. They recently released the remediated version of the
system that has undergone extensive beta testing. All user departments are
involved in the testing process in-house to assure validation of the changes.
Our software supplier has advised us that this testing is expected to reveal any
potential problems well in advance of the impending deadline. At the same time,
testing will take place of those external relationships with which the Bank
exchanges information. Additional testing is also expected to take place on all
other mission-critical information systems. It is believed that this readiness
will increase the likelihood of uninterrupted operation of Bank functions.
In addressing this issue, the Bank has used its current internal staffing with
little reliance on outside resources. Major vendors have provided remediated
software at no expense to the Bank. No major system had to be replaced and none
is expected to be replaced in the coming years. As a result, expenses were
approximately $5,000 for fiscal year 1997 with expenditures for fiscal year 1998
estimated at $20,000. These expenditures are in the areas of customer awareness
and additional software tools for testing.
Rapid and accurate data processing is essential to Company operations. If
testing reveals that any system critical to continued business operation should
fail, all internal and external resources available will be directed toward
correcting these systems. System delays, mistakes, or failures could have an
adverse impact on the Company. We are currently under contract with an external
consulting service should a system failure occur. End-user contingencies are
also being developed. It is expected that these plans will be in place during
the fourth quarter of 1998.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented herein have
been prepared in accordance with GAAP, which requires the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, substantially all of the assets and
liabilities of the Bank are monetary in nature. As a result, interest rates have
a more significant impact on the Bank's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services since
such prices are affected by inflation to a larger extent than interest rates.
For further information regarding the effect of interest rate fluctuations on
the Bank, see "Asset/Liability Management."
EFFECT OF NEW FINANCIAL ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 requires public business enterprises to additionally report items that
affect comprehensive income but not net income. Examples of these items relevant
to the Company include unrealized gains and losses on securities available for
sale. At this time, the Company does not have other comprehensive income to be
reported.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 requires public business
enterprises to report certain information about operating segments. Also
required is certain information about products and services, geographic areas in
which an enterprise operates, and any major customers. SFAS No. 131 is effective
for years beginning after December 15, 1997. Management does not expect the
implementation of SFAS No. 131 to have a material impact on the Company's
consolidated financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. This statement
establishes comprehensive accounting and reporting requirements for derivative
instruments and hedging activities. This statement requires entities to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for gains and losses resulting from
changes in fair value of the derivative instrument depends on the use of the
derivative and the type of risk being hedged. This statement is effective for
all fiscal quarters of all fiscal years beginning after June 15, 1999. Earlier
adoption, however, is permitted. At the present time, the Bank has not fully
analyzed the effect or timing of the adoption of SFAS No. 133 on the Bank's
consolidated financial statements.
14
17
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PVF Capital Corp. and Subsidiaries
Cleveland, Ohio:
We have audited the accompanying consolidated statements of financial condition
of PVF Capital Corp. and subsidiaries (Company) as of June 30, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended June 30, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PVF Capital Corp.
and subsidiaries as of June 30, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Cleveland, Ohio
July 16, 1998
15
18
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, 1998 and 1997
Assets 1998 1997
------ ---- ----
Cash and amounts due from depository institutions $ 2,447,631 7,760,029
Interest bearing deposits 394,331 445,401
Federal funds sold 20,375,000 1,375,000
------------ ------------
Cash and cash equivalents 23,216,962 9,580,430
Securities held to maturity (fair values of
$27,767,525 and $13,899,370, respectively) 27,800,000 13,995,350
Mortgage-backed securities held to maturity, net (market
values of $2,965,247 and $516,579, respectively) 2,950,856 511,530
Loans receivable held for long-term investment, net of allowance
for loan losses of $2,686,521 and $2,674,537, respectively 368,998,087 341,402,566
Loans receivable held for sale, net 1,644,735 709,604
Office properties and equipment, net 2,313,546 1,882,390
Real estate in development 938,071 909,758
Real estate owned 699,236 --
Investment required by law
Stock in the Federal Home Loan Bank of Cincinnati 3,507,564 2,762,314
Prepaid expenses and other assets 1,210,099 1,327,358
------------ ------------
Total assets $433,279,156 373,081,300
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Deposits $344,228,729 288,269,674
Advances from the Federal Home Loan Bank of Cincinnati 46,324,456 47,405,424
Notes payable 1,060,000 2,310,000
Advances from borrowers for taxes and insurance 4,931,114 4,511,595
Accrued expenses and other liabilities 5,526,147 4,311,191
------------ ------------
Total liabilities 402,070,446 346,807,884
Commitments -- --
Stockholders' equity
Serial preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value, 5,000,000 shares authorized;
3,990,808 and 3,485,007 shares issued and outstanding,
respectively 39,908 25,556
Additional paid-in capital 14,517,452 14,522,275
Retained earnings (substantially restricted) 16,651,350 11,725,585
------------ ------------
Total stockholders' equity 31,208,710 26,273,416
Total liabilities and stockholders' equity $433,279,156 373,081,300
============ ============
See accompanying notes to consolidated financial statements.
16
19
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 30, 1998, 1997, and 1996
1998 1997 1996
---- ---- ----
Interest income
Loans $32,499,826 29,418,869 25,572,082
Mortgage-backed securities 155,446 285,246 268,604
Cash and securities 1,709,951 1,258,732 1,920,620
----------- ----------- -----------
Total interest income 34,365,223 30,962,847 27,761,306
Interest expense
Deposits 17,062,418 13,957,543 14,888,819
Short-term borrowings 978,144 1,182,874 327,751
Long-term borrowings 1,517,766 1,420,346 486,609
----------- ----------- -----------
Total interest expense 19,558,328 16,560,763 15,703,179
----------- ----------- -----------
Net interest income 14,806,895 14,402,084 12,058,127
Provision for loan losses 246,000 187,000 417,000
----------- ----------- -----------
Net interest income after provision for loan losses 14,560,895 14,215,084 11,641,127
----------- ----------- -----------
Noninterest income
Service and other fees 621,277 519,512 462,985
Mortgage banking activities, net 869,535 663,002 924,657
Gain on sale of securities available for sale, net -- -- 74,721
Other, net 105,905 153,253 284,505
----------- ----------- -----------
Total noninterest income, net 1,596,717 1,335,767 1,746,868
Noninterest expense
Compensation and benefits 4,512,664 4,423,470 4,136,243
Office, occupancy, and equipment 1,631,802 1,603,583 1,433,037
Insurance 255,365 445,804 737,845
Special SAIF assessment -- 1,707,867 --
Professional and legal 264,555 208,164 167,689
Other 2,185,965 1,611,475 1,513,650
----------- ----------- -----------
Total noninterest expense 8,850,351 10,000,363 7,988,464
----------- ----------- -----------
Income before federal income taxes 7,307,261 5,550,488 5,399,531
Federal income taxes
Current 2,332,125 1,975,742 1,280,375
Deferred 47,230 (72,093) 333,000
----------- ----------- -----------
2,379,355 1,903,649 1,613,375
----------- ----------- -----------
Net income $ 4,927,906 3,646,839 3,786,156
=========== =========== ===========
Basic earnings per share $ 1.25 .95 .99
=========== =========== ===========
Diluted earnings per share $ 1.20 .89 .93
=========== =========== ===========
See accompanying notes to consolidated financial statements.
17
20
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1998, 1997, and 1996
Net
Additional Unrealized
Common Paid-In Retained Securities
Stock Capital Earnings Losses Total
---------- ----------- ----------- ----------- -----------
Balance at June 30, 1995 $ 14,041 8,155,885 10,647,942 -- 18,817,868
Net income -- -- 3,786,156 -- 3,786,156
Stock dividend issued,
140,325 shares 1,404 1,822,821 (1,824,225) -- --
Cash paid in-lieu of
fractional shares -- -- (1,098) -- (1,098)
Stock options exercised,
4,537 shares 45 24,955 -- -- 25,000
Net change in unrealized
securities losses, net of
taxes of $79,471 -- -- -- (154,268) (154,268)
Three-for-two stock split
effected in the form of a
dividend 7,745 (7,745) -- -- --
---------- ----------- ----------- ----------- -----------
Balance at June 30, 1996 23,235 9,995,916 12,608,775 (154,268) 22,473,658
Net income -- -- 3,646,839 -- 3,646,839
Stock dividend issued,
232,224 shares 2,321 4,526,359 (4,528,680) -- --
Cash paid in-lieu of
fractional shares -- -- (1,349) -- (1,349)
Net change in unrealized
securities losses, net of
taxes of $79,471 -- -- -- 154,268 154,268
---------- ----------- ----------- ----------- -----------
Balance at June 30, 1997 25,556 14,522,275 11,725,585 -- 26,273,416
Net income -- -- 4,927,906 -- 4,927,906
Stock options exercised,
127,278 shares 1,049 8,480 -- -- 9,529
Cash paid in-lieu of
fractional shares -- -- (2,141) -- (2,141)
Three-for-two stock split
effected in the form of a
dividend 13,303 (13,303) -- -- --
---------- ----------- ----------- ----------- -----------
Balance at June 30, 1998 $ 39,908 14,517,452 16,651,350 -- 31,208,710
=========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
18
21
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1998, 1997, and 1996
1998 1997 1996
---- ---- ----
Operating activities
Net income $ 4,927,906 3,646,839 3,786,156
Adjustments required to reconcile net income to net
cash used in operating activities
Accretion of discount on securities (4,650) (1,250) (25,475)
Depreciation and amortization 512,290 468,296 477,946
Provision for loan losses 246,000 187,000 417,000
Accretion of unearned discount and deferred loan
origination fees, net (1,464,630) (1,660,399) (1,554,098)
Deferred income tax provision (47,230) 72,093 (333,000)
Gain on sale of securities, net -- -- (74,721)
Proceeds from loans held for sale 81,294,421 46,020,308 36,564,603
Originations of loans held for sale (82,229,552) (53,500,828) (51,350,242)
Mortgage banking operations, excluding mortgage
loan servicing fees and amortization of MSRs (483,915) (250,757) (382,898)
Net change in other assets and other liabilities 1,342,926 (62,112) 1,461,043
------------- ------------- -------------
Net cash provided by (used in) operating
activities 4,093,566 (5,080,810) (11,013,686)
------------- ------------- -------------
Investing activities
Loans originated (143,825,436) (136,862,188) (105,097,698)
Principal repayments on loans 116,232,185 87,823,393 76,464,071
Loans purchased -- -- (13,161,755)
Loans sold -- -- 10,976,057
Proceeds from sales of mortgage-backed securities
available for sale -- 12,598,136 894,443
Principal repayments on mortgage-backed securities
available for sale -- 241,974 195,177
Principal repayments on mortgage-backed securities
held to maturity 589,488 123,716 2,246,171
Proceeds from sales of securities available
for sale -- -- 10,007,188
Purchase of mortgage-backed securities held to maturity (3,017,075) -- --
Purchase of securities held to maturity (27,800,000) -- (24,298,789)
Maturities of securities held to maturity 14,000,000 100,000 41,491,590
Federal Home Loan Bank (FHLB) stock purchased,
net (745,250) (882,314) (123,865)
(Additions) disposal to office properties and
equipment (943,445) 220,880 (322,935)
Disposals of real estate owned 1,025,818 508,837 826,080
(Additions) disposals of real estate in development, net (28,313) (54,867) 30,859
------------- ------------- -------------
Net cash provided by (used in)
investing activities (44,512,028) (36,182,433) 126,594
------------- ------------- -------------
See accompanying notes to consolidated financial statements.
19
22
PVF CAPITAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1998, 1997, and 1996
1998 1997 1996
---- ---- ----
Financing activities
Payments on FHLB advances $(92,580,968) (72,576,227) (25,018,349)
Proceeds from FHLB advances 91,500,000 92,500,000 37,500,000
Proceeds from notes payable -- -- 1,200,000
Repayment of notes payable (1,250,000) (400,000) (290,000)
Net increase (decrease) in NOW and passbook savings 5,693,428 (48,405) 5,132,229
Proceeds from issuance of certificates of deposit 85,884,130 58,655,161 45,556,108
Payments on maturing certificates of deposit (35,618,504) (41,382,167) (51,933,694)
Other 426,908 305,095 (87,566)
------------ ------------ ------------
Net cash provided by financing activities 54,054,994 37,053,457 12,058,728
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 13,636,532 (4,209,786) 1,171,636
Cash and cash equivalents at beginning of year 9,580,430 13,790,216 12,618,580
------------ ------------ ------------
Cash and cash equivalents at end of year $ 23,216,962 9,580,430 13,790,216
============ ============ ============
Supplemental disclosures of cash flow information
Cash payments of interest expense $ 19,530,151 16,416,368 15,611,439
Cash payments of income taxes 2,617,000 1,580,000 1,165,000
============ ============ ============
Supplemental schedule of noncash investing and
financing activities
Loans exchanged for mortgage-backed securities $ -- 5,376,484 8,052,331
Transfers from real estate owned (989,299) (481,567) (706,538)
Transfers to real estate owned 2,714,353 428,982 759,122
============ ============ ============
See accompanying notes to consolidated financial statements.
20
23
09/12/98
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998, 1997, and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
The accounting and reporting policies of PVF Capital Corp. and its
subsidiaries (Company) conform to generally accepted accounting
principles and general industry practice. The Company's principal
subsidiary, Park View Federal Savings Bank (Bank), is principally engaged
in the business of offering savings deposits through the issuance of
savings accounts, money market accounts, and certificates of deposit and
lending funds primarily for the purchase, construction, and improvement
of real estate in Cuyahoga, Summit, Geauga, Lake and eastern Lorain
Counties, Ohio. The deposit accounts of the Bank are insured under the
Savings Association Insurance Fund (SAIF) of the Federal Deposit
Insurance Corporation (FDIC) and are backed by the full faith and credit
of the United States government. The following is a description of the
significant policies which the Company follows in preparing and
presenting its consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PVF Capital
Corp. and its wholly owned subsidiaries, Park View Federal Savings Bank
and PVF Service Corporation. All significant intercompany transactions
and balances are eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
ALLOWANCE FOR LOSSES
A loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect the
scheduled payments of principal and interest according to the contractual
terms of the loan agreement. Since the Bank's loans are primarily
collateral dependent, measurement of impairment is based on the fair
value of the collateral.
The adequacy of the allowance for loan losses is periodically evaluated
by the Bank based upon the overall portfolio composition and general
market conditions. While management uses the best information available
to make these evaluations, future adjustments to the allowance may be
necessary if economic conditions change substantially from the
assumptions used in making the evaluations. Future adjustments to the
allowance may also be required by regulatory examiners based on their
judgments about information available to them at the time of their
examination.
Uncollectible interest on loans that are contractually 90 days or more
past due is charged off, or an allowance is established. The allowance is
established by a charge to interest income equal to all interest
previously accrued, and income is subsequently recognized only to the
extent cash payments are received until the loan is determined to be
performing in accordance with the applicable loan terms in which case the
loan is returned to accrual status.
MORTGAGE BANKING ACTIVITIES
Mortgage loans held for sale are carried at the lower of cost or market
value, determined on a net aggregate basis.
21
24
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company retains servicing on loans that are sold. Effective January
1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 122, Accounting for Mortgage Servicing Rights. Effective January 1,
1997, the Company adopted Statement of Financial Accounting Standards No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which supersedes SFAS No. 122 and
provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities.
As a result of the adoption, the Company recognizes an asset for mortgage
servicing rights based on an allocation of total loan cost using relative
fair values, or a liability for mortgage servicing rights based on fair
value, if the benefits of servicing are not expected to adequately
compensate the Company. The cost of mortgage servicing rights is
amortized in proportion to, and over the period of, estimated net
servicing revenues. Impairment of mortgage servicing rights is assessed
based on the fair value of those rights. Fair values are estimated using
discounted cash flows based on current market interest rates and
prepayment assumptions. For purposes of measuring impairment, the rights
are stratified based on predominant risk characteristics of the
underlying loans such as interest rates and scheduled maturity. The
amount of impairment recognized is the amount by which the capitalized
mortgage servicing rights exceed their fair value. The Company monitors
prepayments, and in the event that actual prepayments exceed original
estimates, amortization is adjusted accordingly.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
The Company classifies all securities as held to maturity or available
for sale. Securities held to maturity are limited to debt securities that
the holder has the positive intent and the ability to hold to maturity;
these securities are reported at amortized cost. Securities available for
sale consist of all other securities; these securities are reported at
fair value, and unrealized gains and losses are not reflected in earnings
but are reflected as a separate component of stockholders' equity, net of
tax. Investment and mortgage-backed securities that could be sold in the
future because of changes in interest rates or other factors are not be
classified as held to maturity.
Gains or losses on the sales of all securities are recognized at the date
of sale (trade date).
OFFICE PROPERTIES AND EQUIPMENT
Depreciation and amortization are computed using the straight-line method
at rates expected to amortize the cost of the assets over their estimated
useful lives or, with respect to leasehold improvements, the term of the
lease, if shorter.
FEDERAL INCOME TAXES
The Company files a consolidated tax return with its wholly owned
subsidiaries and provides deferred federal income taxes in recognition of
temporary differences between financial statement and income tax
reporting. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled, and the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(Continued)
22
25
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
LOAN ORIGINATION AND COMMITMENT FEES
The Bank defers loan origination and commitment fees and certain direct
loan origination costs and amortizes the net amount over the lives of the
related loans as a yield adjustment if the loans are held for investment,
or recognizes the net fees as mortgage banking income when the loans are
sold.
REAL ESTATE IN DEVELOPMENT
Real estate in development is carried at the lower of cost, including
capitalized holding costs, or fair value less estimated selling costs.
STATEMENTS OF CASH FLOWS
For purposes of the consolidated statements of cash flows, the Company
considers cash and amounts due from depository institutions, interest
bearing deposits, and federal funds sold with original maturities of less
than three months to be cash equivalents.
EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share," was adopted for 1998 with all
prior-period earnings per share data restated. The statement requires
dual presentation of basic earnings per share and diluted earnings per
share on the Consolidated Statements of Operations. Earnings per share is
calculated by dividing net income for the period by the weighted average
number of shares of common stock outstanding during the period. The
assumed exercise of stock options is included in the calculation of
diluted earnings per share.
The per share data for 1998, 1997, and 1996 are adjusted to reflect the
three-for-two stock issuance declared July 1996; and the 10 percent stock
dividend declared July 1997 and the three-for-two stock issuance declared
July, 1998.
RECLASSIFICATION
Certain reclassifications have been made to the prior year amounts to
conform to the current year presentation.
(2) Securities
Securities held to maturity at June 30, 1998 and 1997, are summarized as
follows:
1998
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
United States Government and
agency securities $27,800,000 4,565 (37,040) 27,767,525
=========== =========== =========== ===========
Due after five years $18,000,000 -- (37,040) 17,962,960
Due after one year through five years 9,800,000 4,565 -- 9,804,565
----------- ----------- ----------- -----------
$27,800,000 4,565 (37,040) 27,767,525
=========== =========== =========== ===========
(Continued)
23
26
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1997
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------------------------------------------------------
United States Government and
agency securities $ 13,995,350 - (95,980) 13,899,370
============ ============ ====== ==========
Due after one year through five years 13,995,350 - (95,980) 13,899,370
---------- ------------ ------ ----------
$ 13,995,350 - (95,980) 13,899,370
============ ============ ====== ==========
There were no sales of securities for the year ended June 30, 1998 or
1997. Realized gains and losses on sales of securities available for sale
were $100,658 and $25,937, respectively, for the year ended June 30,
1996.
(3) MORTGAGE-BACKED SECURITIES
Mortgage-backed securities held to maturity at June 30, 1998 and 1997, are
summarized as follows:
--------------------------------------------------------
1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------------------------------------------------------
FHLMC mortgage-backed securities $ 2,932,491 14,391 - 2,946,882
Accrued interest receivable 18,365 - - 18,365
-------------- --------- ------------ -----------
$ 2,950,856 14,391 - 2,965,247
============== ====== ============ =========
Due after one year through five years $ 2,950,856 14,391 - 2,965,247
============== ====== ============ =========
--------------------------------------------------------
1997
--------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------------------------------------------------------
FHLMC mortgage-backed securities $ 504,903 5,049 - 509,952
Accrued interest receivable 6,627 - - 6,627
---------- -------- ------------ ---------
$ 511,530 5,049 - 516,579
========== ===== ============ =======
Due after ten years $ 511,530 5,049 - 516,579
========== ===== ============ =======
(Continued)
24
27
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) LOANS RECEIVABLE HELD FOR LONG-TERM INVESTMENT
Loans receivable held for long-term investment at June 30, 1998 and 1997,
consist of the following:
1998 1997
---- ----
Real estate mortgages
One-to-four family residential $ 140,562,371 128,186,837
Home equity line of credit 18,761,725 16,941,154
Multifamily residential 31,493,450 31,090,035
Commercial 94,587,534 84,940,296
Land 30,462,374 32,045,277
Construction 96,062,788 82,610,430
--------------- -----------
Total real estate mortgages 411,930,242 375,814,029
Consumer 3,887,263 3,595,550
--------------- -----------
415,817,505 379,409,579
Accrued interest receivable 2,198,910 2,086,288
Deferred loan origination fees (1,673,697) (1,717,859)
Unearned discount (35,887) (47,715)
Undisbursed portion of loan proceeds (44,622,223) (35,653,190)
Allowance for loan losses (2,686,521) (2,674,537)
--------------- -----------
$ 368,998,087 341,402,566
=============== ===========
A summary of the changes in the allowance for loan losses for the years
ended June 30, 1998, 1997, and 1996, is as follows (write-offs include
transfers to real estate owned):
1998 1997 1996
---- ---- ----
Beginning Balance $ 2,674,537 2,564,720 2,402,098
Provision charged to operations 246,000 187,000 417,000
Write-offs (236,593) (197,875) (265,361)
Recoveries 2,577 120,692 10,983
--------------- --------- ---------
Ending Balance $ 2,686,521 2,674,537 2,564,720
=============== ========= =========
The following is a summary of the principal balances (as rounded) of
loans on nonaccrual status, and loans past due 90 days or more which were
on accrual status, at June 30:
1998 1997
---- ----
Loans on nonaccrual status
Real estate mortgages
One-to-four family residential $ 1,242,000 918,000
Construction and land 2,026,000 3,179,000
Consumer 15,000 40,000
------------ ---------
Total loans on nonaccrual status 3,283,000 4,137,000
------------ ---------
Past due loans on accrual status
Real estate mortgages
Construction and land 163,000 476,000
------------ ---------
Total past due loans $ 3,446,000 4,613,000
============ =========
(Continued)
25
28
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
It is the Bank's policy to not record into income partial interest
payments. During the years ended June 30, 1998 and 1997, gross interest
income of $204,736 and $310,162, respectively, would have been recorded
on loans accounted for on a nonaccrual basis if the loans had been
current throughout the period.
At June 30, 1998 and 1997, the recorded investment in loans which have
been identified as being impaired totaled $3,283,000 and $4,137,000,
respectively. Included in the impaired amount at June 30, 1998 and 1997,
is $453,113 and $159,863, respectively, related to loans with a
corresponding valuation allowance of $196,386 and $68,763, respectively.
The Company recognized no interest on impaired loans in 1998, 1997, and
1996 (during the portion of the respective years that they were
impaired).
Average impaired loans for the years ended June 30, 1998, 1997, and 1996
amounted to $3,791,500, $3,245,000, and $2,979,000, respectively.
(5) LOANS RECEIVABLE HELD FOR SALE
Loans receivable held for sale at June 30, 1998 and 1997, consist of the
following:
1998
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------------------------------------------------
Real estate mortgages $ 1,660,719 30,065 - 1,690,784
Deferred loan origination fees (15,984) - - (15,984)
------------ ---------- --------- -----------
$ 1,644,735 - - 1,674,800
============ ========== ========= =========
1997
------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------------------------------------------------
Real estate mortgages $ 721,502 14,286 - 735,788
Deferred loan origination fees (11,898) - - (11,898)
--------- --------- --------- -------
$ 709,604 14,286 - 723,890
============ ====== ========= =======
Mortgage banking activities, net, for each of the years in the three-year
period ended June 30, 1998, consist of the following:
1998 1997 1996
---- ---- ----
Mortgage loan servicing fees $ 617,080 580,328 541,759
Amortization of mortgage servicing rights (231,460) (168,083) -
Gross realized
Gains on sales of loans 1,209,893 975,826 831,283
Losses on sales of loans (725,978) (578,053) (347,142)
Gains on sales of mortgage-backed securities - 16,673 21,386
Losses on sales of mortgage-backed securities - (81,759) (40,625)
Market valuation provision for losses on loans
held for sale - (176,514) (82,004)
Market valuation recoveries - 94,584 -
------------- -------- -------
$ 869,535 663,002 924,657
=========== ======= =======
(Continued)
26
29
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the changes in the allowance for mortgage banking market
value losses for the years ended June 30, 1998, 1997, and 1996 is as
follows:
1998 1997 1996
---- ---- ----
Balance at beginning of year $ - 13,314 -
Market valuation provision for losses on loans
held for sale - 176,514 82,004
Market valuation loss on loans and mortgage-
backed securities sold - (95,244) -
Market valuation recoveries - (94,584) -
Discount on loans transferred to held for investment - - (68,690)
------ --------- --------
Balance at end of year $ - - 13,314
====== ========= ========
At June 30, 1998, 1997, and 1996, the Bank was servicing whole and
participation mortgage loans for others aggregating approximately
$233,893,979; $195,250,000; and $171,043,000, respectively. The Bank had
$3,304,702; and $2,186,100 at June 30, 1998 and 1997, respectively, of
funds collected on mortgage loans serviced for others due to investors,
which is included in accrued expenses and other liabilities.
Originated mortgage servicing rights capitalized and amortized during the
years ended June 30, 1998, 1997 and 1996 were as follows:
1998 1997 1996
---- ---- ----
Beginning balance $ 451,000 241,000 -
Originated 386,600 378,000 241,000
Amortized (231,400) (168,000) -
---------- ------- -----
Ending balance $ 606,200 451,000 241,000
========== ======= =======
Estimated fair value $ 1,639,261 865,481 241,000
========= ======= =======
No valuation allowance has been established for mortgage servicing rights
as there has been no impairment on those rights.
(6) OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at cost, less accumulated depreciation
and amortization at June 30, 1998 and 1997, are summarized as follows:
1998 1997
---- ----
Land and land improvements $ 207,092 207,092
Building and building improvements 1,062,525 1,059,793
Leasehold improvements 1,847,269 1,457,711
Furniture and equipment 3,512,837 2,961,682
------------- ---------
6,629,723 5,686,278
Less accumulated depreciation and amortization (4,316,177) (3,803,888)
------------- ---------
$ 2,313,546 1,882,390
============= =========
(Continued)
27
30
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) DEPOSITS
Deposit balances at June 30, 1998 and 1997, are summarized by interest
rate as follows:
1998 1997
------------------ -------------------
Amount % Amount %
------ ---- ------- ----
NOW and money
market accounts Noninterest bearing $ 6,261,947 1.8% $ 5,619,988 1.9%
2.00 - 5.00% 24,756,893 7.2 19,963,938 6.9
---------- ------- ------------- -------
31,018,840 9.0 25,583,926 8.8
Passbook savings 3.00 - 5.00% 31,844,333 9.3 31,585,818 11.0
Certificates of deposit 2.50 - 2.99% 385,101 .1 456,618 .2
3.00 - 3.99 - - - -
4.00 - 4.99 9,568,477 2.8 12,352,923 4.2
5.00 - 5.99 121,695,954 35.4 119,613,292 41.5
6.00 - 6.99 137,125,129 39.8 82,592,866 28.7
7.00 - 7.99 12,406,221 3.5 15,906,866 5.5
8.00 - 8.99 184,674 .1 170,361 .1
9.00 - 9.99 - - 7,004 -
--------------- ------- ------------- -------
281,365,556 81.7 231,099,930 80.2
--------------- ----- ------------- ------
$ 344,228,729 100.0% $ 288,269,674 100.0%
=============== ===== ============= =====
Weighted average rate on deposits 5.32% 5.22%
====== ======
1998 1997
------------------- ------------------
Amount % Amount %
------- --- ------ ----
Remaining term to maturity of
certificates of deposit
12 months or less $ 211,559,590 75.2% $ 172,492,046 74.6%
13 to 24 months 52,392,548 18.6 32,592,344 14.1
25 to 36 months 13,613,228 4.8 20,728,309 9.0
Over 36 months 3,800,190 1.4 5,287,231 2.3
--------------- ------- ------------- -------
$ 281,365,556 100.0% $ 231,099,930 100.0%
=============== ===== =========== =====
Weighted average rate on certificates
of deposit 5.95% 5.90%
====== ======
Time deposits in amounts of $100,000 or more totaled $47,573,221 and
$48,907,331 at June 30, 1998 and 1997, respectively.
Interest expense on deposits is summarized as follows:
1998 1997 1996
---- ---- ----
NOW accounts $ 599,436 529,889 414,869
Passbook accounts 870,661 867,687 865,170
Certificates of deposit 15,592,321 12,559,967 13,608,780
---------- ---------- ----------
$ 17,062,418 13,957,543 14,888,819
========== ========== ==========
(Continued)
28
31
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) ADVANCES FROM THE FEDERAL HOME LOAN BANK OF CINCINNATI
Advances from the Federal Home Loan Bank of Cincinnati, with maturities
and interest rates thereon at June 30, 1998 and 1997, were as follows:
Maturity Interest Rate 1998 1997
-------- ------------- ---- ----
March 1998 5.50 $ - 5,000,000
March 2001 5.93 5,000,000 5,000,000
February 2003 6.00 500,000 500,000
February 2006 6.05 824,456 905,424
September 1998 6.63 - 26,000,000
March 1999 6.50 10,000,000 10,000,000
February 2008 5.37 10,000,000 -
March 2008 5.15 5,000,000 -
March 2008 5.64 10,000,000 -
March 2008 5.13 5,000,000 -
--------------- ----------
$ 46,324,456 47,405,424
=============== ==========
Weighted average interest rate 5.71% 6.39%
==== ====
The Bank maintains two lines of credit, totaling $60,000,000, with the
Federal Home Loan Bank of Cincinnati (FHLB). The $40,000,000 repurchase
line matures in September 1998. The Bank has chosen to take daily
advances from this line, with the interest rate set daily. The
$20,000,000 cash management line matures in December 1998. Serving as
collateral for such advances, the Bank has pledged mortgage loans with
unpaid principal balances aggregating approximately $69,486,683 and
$71,108,136 at June 30, 1998 and 1997, respectively.
In addition, stock in the FHLB is pledged for such advances.
The Bank has the capacity to borrow up to 25 percent of its assets, upon
approval of the FHLB. At June 30, 1998 and 1997, the Bank had the
capacity to borrow an additional $62,000,000 and $46,000,000,
respectively, in FHLB advances.
(9) NOTES PAYABLE
Notes payable consist of the following at June 30, 1998 and 1997:
Maturity Interest Rate 1998 1997
-------- ------------- ---- ----
Promissory note September 2000 9.50% $ - 600,000
Mortgage note July 2000 9.00% 1,060,000 1,710,000
--------- ---------
$ 1,060,000 2,310,000
========= =========
On June 30, 1996, PVF Capital Corp. secured a mortgage note from a
federally insured institution at a fixed interest rate. Interest payments
are due on the first day of each month, and principal payments of $10,000
per month are due beginning in August 1998 through the date of maturity,
July 2000, at which time the remaining unpaid principal balance is due
and payable in full. The note was paid in full on October 2, 1997.
On August 16, 1996, PVF Service Corporation, a wholly owned subsidiary of
the Company, secured a promissory note from another federally insured
institution at a variable interest rate that adjusts to prime plus 1
percent without notice on the effective date of each change in the
lender's prime rate.
(Continued)
29
32
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) FEDERAL INCOME TAXES AND RETAINED EARNINGS
The accompanying consolidated financial statements reflect provisions for
federal income taxes differing from the amounts computed by applying the
U.S. federal income tax statutory rate to income before federal income
taxes. These differences are reconciled as follows:
1998 1997 1996
------------------- ------------------- --------------------
Percent Percent Percent
of of of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------ -------- ------- -------- ------ --------
Computed expected tax $ 2,557,541 35.0% 1,942,671 35.0 % 1,889,836 35.0%
Decrease in tax resulting from
Benefit of graduated rates (73,073) (1.0) (55,505) (1.0) (53,995) (1.0)
Tax credits (287,788) (3.9) - - - -
Other, net 182,675 2.5 16,483 (0.3) (222,466) (4.1)
-------------- ----- ----------- ----- --------- -----
$ 2,379,355 32.6% 1,903,649 34.3% 1,613,375 29.9%
============== ==== =========== ==== ========= ====
The net tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at June
30, 1998 and 1997, are:
1998 1997
---- ----
Deferred tax assets
Loan loss and other reserves $ 883,039 883,466
Capital loss carryforward 102,374 -
Other 162,707 66,170
---------- --------
Total gross deferred tax assets 1,148,120 949,636
Less valuation allowance (102,374) -
---------- -------
Net deferred tax assets 1,045,746 949,636
--------- -------
Deferred tax liabilities
Deferred loan fees 262,929 218,165
FHLB stock dividend 517,587 442,226
Unrealized gains on loan sales, net - 3,140
Originated mortgage servicing asset 206,094 153,423
Bad debt reserves over base year reserves - 55,433
Other 144,150 115,033
------------- -------
Total gross deferred tax liabilities 1,130,760 987,420
------------- -------
Net deferred tax (liability) $ (85,014) (37,784)
============= ========
A valuation allowance is established to reduce the deferred tax asset if
it is more likely than not that the related tax benefits will not be
realized. In management's opinion, it is more likely than not that the
tax benefits will be realized; consequently, no valuation allowance has
been established as of June 30, 1998 or 1997, other than as noted above
for the capital loss carryforward.
Retained earnings at June 30, 1998 includes approximately $4,516,000 for
which no provision for federal income tax has been made. This amount
represents allocations of income during years prior to 1988 to bad debt
deductions for tax purposes only. These qualifying and nonqualifying base
year reserves and supplemental reserves will be recaptured into income in
the event of certain distributions and redemptions. Such recapture would
create income for tax purposes only, which would be subject to the then
current
(Continued)
30
33
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
corporate income tax rate. Recapture would not occur upon the
reorganization, merger, or acquisition of the Bank, nor if the Bank is
merged or liquidated tax-free into a bank or undergoes a charter change.
If the Bank fails to qualify as a bank or merges into a nonbank entity,
these reserves will be recaptured into income.
The favorable reserve method previously afforded to thrifts was repealed
for tax years beginning after December 31, 1995. Large thrifts must
switch to the specific charge-off method of section 166, while small
thrifts, such as the Bank, must switch to the reserve method of section
585 (the method used by small commercial banks). In general, a thrift is
required to recapture the amount of its qualifying and nonqualifying
reserves in excess of its qualifying and nonqualifying base year
reserves. There is an exception to the general recapture provision for
small thrifts. A small thrift is required to recapture the portion of its
reserves that exceeds the greater of (1) the experience method reserve
computed as if the thrift had always been a small bank, or (2) the lesser
of the qualifying and nonqualifying base year reserves or the contracted
base year reserves.
The Bank has no such excess reserves to recapture.
(11) LEASES
Future minimum payments under noncancelable operating leases with initial
or remaining terms of one year or more consisted of the following at June
30, 1998:
Year Ending June 30,
--------------------
1999 $ 332,798
2000 249,014
2001 242,645
2002 242,645
Thereafter 316,613
-------------
Total minimum lease payments $ 1,383,715
=============
During the years ended June 30, 1998, 1997, and 1996, rental expense is as
follows:
1998 1997 1996
---- ---- ----
Net rental expense $ 435,097 374,420 331,941
=========== ======= =======
(12) COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank enters into commitments with
off-balance sheet risk to meet the financing needs of its customers.
Commitments to extend credit involve elements of credit risk and interest
rate risk in excess of the amount recognized in the consolidated
statements of financial condition. The Bank's exposure to credit loss in
the event of nonperformance by the other party to the commitment is
represented by the contractual amount of the commitment. The Bank uses
the same credit policies in making commitments as it does for on-balance
sheet instruments. Interest rate risk on commitments to extend credit
results from the possibility that interest rates may have moved
unfavorably from the position of the Bank since the time the commitment
was made.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates of 60 to 120 days or
other termination clauses and may require payment of a fee. Since some of
the commitments may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
(Continued)
31
34
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Bank evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained by the Bank upon extension of
credit is based on management's credit evaluation of the applicant.
Collateral held is generally residential and commercial real estate.
The Bank's lending is concentrated in Northeastern Ohio, and as a result,
the economic conditions and market for real estate in Northeastern Ohio
could have a significant impact on the Bank.
At June 30, 1998 and 1997, the Bank had the following commitments:
1998 1997
---- ----
Commitments to sell mortgage loans
in the secondary market $ 3,407,600 773,000
Commitments to fund variable mortgage loans 21,871,601 29,098,000
Commitments to fund fixed mortgage loans 5,736,100 2,103,000
There are pending against the Company various lawsuits and claims which
arise in the normal course of business. In the opinion of management, any
liabilities that may result from pending lawsuits and claims will not
materially affect the financial position of the Company.
(13) REGULATORY CAPITAL
Office of Thrift Supervision (OTS) regulations require savings
institutions to maintain certain minimum levels of regulatory capital. An
institution that fails to comply with its regulatory capital requirements
must obtain OTS approval of a capital plan and can be subject to a
capital directive and certain restrictions on its operations. At June 30,
1998, the minimum regulatory capital regulations require institutions to
have tangible capital equal to 1.5 percent of adjusted total assets, a 3
percent leverage capital ratio, and an 8 percent risk-based capital
ratio. At June 30, 1998, the Bank exceeded all of the aforementioned
regulatory capital requirements.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) was
signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19,
1992. The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." To be considered "well capitalized," an
institution must generally have a leverage ratio of at least 5 percent, a
Tier 1 risk-based capital ratio of at least 6 percent, and a total
risk-based capital ratio of at least 10 percent. As of June 30, 1998, the
most recent notification from the OTS categorized the Bank as "well
capitalized" under the regulatory framework for prompt corrective action.
(Continued)
32
35
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At June 30, 1998 and 1997, the Bank was in compliance with regulatory
capital requirements as set forth below (dollars in thousands):
Tier-1 Total
Core/ Risk- Risk-
Equity Tangible Leverage Based Based
Capital Capital Capital Capital Capital
------- ------- ------- ------- -------
June 30, 1998
GAAP capital $ 31,727 31,727 31,727 31,727 31,727
General loan valuation allowances - - - 2,597
------------ ------------ --------- ---------
Regulatory capital 31,727 31,727 31,727 34,324
Total assets 440,065
-------
Adjusted total assets 440,065 440,065
------- -------
Risk-weighted assets 313,915 313,915
------- -------
Capital ratio 7.21% 7.21% 7.21% 10.11% 10.93%
Regulatory requirement 1.5% 3.00% 8.00%
Regulatory capital category
Well capitalized -
equal to or greater than 5.00% 6.00% 10.00%
Tier-1 Total
Core/ Risk- Risk-
Equity Tangible Leverage Based Based
Capital Capital Capital Capital Capital
------- ------- ------- ------- -------
June 30, 1997
GAAP capital $ 27,604 27,604 27,604 27,604 27,604
General loan valuation allowances - - - 2,598
------------ ----------- --------- --------
Regulatory capital 27,604 27,604 27,604 30,202
Total assets 375,915
-------
Adjusted total assets 375,915 375,915
------- -------
Risk-weighted assets 284,483 284,483
------- -------
Capital ratio 7.34% 7.34% 7.34% 9.70% 10.62%
Regulatory requirement 1.50% 3.00% 8.00%
Regulatory capital category
Well capitalized -
equal to or greater than 5.00% 6.00% 10.00%
(Continued)
33
36
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) STOCK OPTIONS
The Bank offered stock options to the directors and officers of the bank
in 1993, 1997, and 1998. Under the 1992 plan, 381,830 options were
originally granted, which are exercisable for a ten-year period and can
be exercised at any time. In 1996, 32,100 options were granted and in
1997 32,550 were granted which are exercisable for a ten-year period,
with 20 percent of the options vesting each year. Options were granted at
fair market value and, accordingly, no charges were reflected in the
compensation and benefits expense due to the granting of stock options.
The excess of the option price over the par value of the shares purchased
through the exercise of stock options is credited to additional capital:
1998 1997 1996
------------------ ------------------ -------------------
Average Average Average
Option Option Option
(Shares in 000's) Shares Price Shares Price Shares Price
------ ------- ------ ------- ------ -------
Outstanding beginning of year 399,143 $ 2.84 363,833 $ 2.23 375,062 $ 2.23
Exercised (191,412) 2.25 - 2.23 (11,229) 2.23
Expired (1,980) 9.09 - - - -
Granted 32,550 13.16 35,310 9.09 - -
Outstanding end of year 238,301 4.67 399,143 2.84 363,833 2.23
Exercisable end of year 192,560 4.67 370,895 2.84 291,066 2.23
As of June 30, 1998, options outstanding have exercise prices between
$2.23 and $13.17 and a weighted average remaining contractual life of 5.2
years.
The Company has elected to disclose pro forma net income and net income
per share as if the fair-value-based method had been applied in measuring
compensation costs. The Company's pro forma information for the years
ended June 30:
1998 1997 1996
---- ---- ----
Net income $ 4,927,906 3,646,839 3,786,156
Less: Compensation expense,
net of tax 34,720 60,539 43,966
------------ --------- ---------
Pro forma earnings $ 4,893,186 3,586,300 3,742,190
============ ========= =========
Basic earnings per share $ 1.25 .95 .99
==== === ===
Pro forma basic earnings per share $ 1.24 .94 .98
==== === ===
Diluted earning per share $ 1.20 .89 .93
==== === ===
Pro forma diluted earnings per share $ 1.19 .87 .92
==== === ===
Compensation expense reflected in the pro forma disclosures is not
indicative of future amounts when the SFAS No. 123 prescribed method will
apply to all outstanding nonvested awards.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1998, 1997, and 1996; expected dividend
yield of -0-, and expected option lives of 7 years; expected volatility
of 5 percent, 20 percent, and 20 percent, and risk free interest rates of
5.56 percent, 6 percent, and 6 percent, respectively.
(Continued)
34
37
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Pursuant to the terms of the plans, share information and exercise prices
have been adjusted to reflect the impact of stock splits and dividends
subsequent to the granting dates of the options.
(15) EARNINGS PER SHARE
Reconciliation of Basic Earnings Per Share to Diluted Earnings Per Share
for The Years Ended June 30:
1998
-----------------------------------------
Net Per-Share
Income Shares Amount
------ ------ ------
Basic EPS $ 4,927,906 3,938,379 1.25
Income available to common shareholders
Effect of Stock Options - 158,824 .05
------------ ---------- -----
Diluted EPS
Income available to common
shareholders $ 4,927,906 4,097,203 1.20
============ ========= ====
1997
-------------------------------------------
Net Per-Share
Income Shares Amount
------ ------ ------
Basic EPS $ 3,646,839 3,833,343 .95
Income available to common shareholders
Effect of Stock Options - 272,621 .06
------------ ---------- ---
Diluted EPS
Income available to common
shareholders $ 3,646,839 4,105,964 .89
========= ========= ===
1996
--------------------------------------------
Net Per-Share
Income Shares Amount
------ ------ ------
Basic EPS $ 3,786,156 3,833,343 .99
Income available to common shareholders
Effect of Stock Options - 223,346 .06
------------ ---------- ---
Diluted EPS
Income available to common
shareholders $ 3,786,156 4,066,689 .93
========= ========= ===
(Continued)
35
38
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Bank using
available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret
market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts
the Bank could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
June 30, 1998 June 30, 1997
--------------------------- ----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Assets
Cash and amounts due from
depository institutions $ 2,447,631 2,447,631 7,760,029 7,760,029
Interest bearing deposits 394,331 394,331 445,401 445,401
Federal funds sold 20,375,000 20,375,000 1,375,000 1,375,000
Securities held to maturity 27,800,000 27,767,525 13,995,350 13,899,370
Mortgage-backed securities
held to maturity, net 2,950,856 2,965,247 511,530 516,579
Loans receivable held for
Long-term investment, net 368,998,087 378,879,256 341,402,566 348,162,337
Sale, net 1,644,735 1,674,800 709,604 723,890
Stock in the Federal Home
Loan Bank of Cincinnati 3,507,564 3,507,564 2,762,314 2,762,314
Liabilities
Demand deposits 62,863,173 62,683,173 57,169,744 56,586,613
Time deposits 281,365,556 282,062,000 231,099,930 226,477,931
Advances from the Federal
Home Loan Bank of
Cincinnati 46,324,456 45,434,000 47,405,424 47,072,000
Notes payable 1,060,000 1,060,000 2,310,000 2,310,000
Cash and amounts due from depository institutions, interest bearing
deposits, and federal funds sold. The carrying amount is a reasonable
estimate of fair value because of the short maturity of these
instruments.
Securities and mortgage-backed securities. Estimated fair value for
securities and mortgage-backed securities is based on quoted market
prices.
Loans receivable held for investment and held for sale. For loans
receivable held for sale, fair value is estimated using the quoted market
prices for securities backed by similar loans, adjusted for differences
in loan characteristics. For performing loans receivable held for
investment, fair value is estimated by discounting contractual cash flows
adjusted for prepayment estimates using discount rates based on secondary
market sources adjusted to reflect differences in servicing and credit
costs. For other loans, cash flows and maturities are estimated based on
contractual interest rates and historical experience and are discounted
using secondary market rates adjusted for differences in servicing and
credit costs.
Fair value for significant nonperforming loans is based on recent
external appraisals. If appraisals are not available, estimated cash
flows are discounted using a rate commensurate with the risk associated
with the estimated cash flows. Assumptions regarding credit risk, cash
flows, and discount rates are judgmentally determined using available
market information and specific borrower information.
(Continued)
36
39
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock in the Federal Home Loan Bank of Cincinnati. This item is valued at
cost, which represents redemption value and approximate fair value.
Demand deposits and time deposits. The fair value of demand deposits,
savings accounts, and certain money market deposits is the amount payable
on demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using discounted cash flows and
rates currently offered for deposits of similar remaining maturities.
Advances from the Federal Home Loan Bank of Cincinnati. The fair value of
the Bank's FHLB debt is estimated based on the current rates offered to
the Bank for debt of the same remaining maturities.
Notes payable. The carrying value of the Company's fixed rate note
payable is a reasonable estimate of fair value based on the current
incremental borrowing rate for similar types of borrowing arrangements.
For the variable rate note payable, the carrying amount is a reasonable
estimate of fair value.
Off-balance sheet instruments. The fair value of commitments is estimated
using the fees currently charged to enter similar agreements, taking into
account the remaining terms of the agreements and the counterparties'
credit standing. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed rates. The fair value of undisbursed lines of credit is based
on fees currently charged for similar agreements or on estimated cost to
terminate them or otherwise settle the obligations with the
counterparties at the reporting date. The carrying amount and fair value
of off-balance sheet instruments is not significant as of June 30, 1998
and 1997.
(Continued)
37
40
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited consolidated quarterly
results of operations for 1998 and 1997 (in thousands of dollars, except
per share data): (1)
Quarters for the Year Ended June 30, 1998
-----------------------------------------
First Second Third Fourth
------------------------------------------
Interest income $ 8,196 8,569 8,713 8,887
Interest expense 4,683 4,782 4,861 5,232
----- ----- ----- -----
Net interest income 3,513 3,787 3,852 3,655
Provision for losses on loans 45 50 106 45
Noninterest income 425 367 461 344
Noninterest expense 2,006 2,104 2,173 2,568
----- ----- ----- -----
Income before taxes 1,887 2,000 2,034 1,386
Federal income taxes 626 699 700 354
------ ------ ------ ------
Net income $ 1,261 1,301 1,334 1,032
===== ===== ===== =====
Basic earnings per share (2) $ 0.33 0.33 0.33 0.26
====== ====== ====== ======
Diluted earnings per share (2) $ 0.31 0.32 0.32 0.25
====== ====== ====== ======
Quarters for the Year Ended June 30, 1997
-----------------------------------------
First Second Third Fourth
-----------------------------------------
Interest income $ 7,536 7,662 7,733 8,032
Interest expense 4,015 4,099 4,133 4,314
----- ----- ----- -----
Net interest income 3,521 3,563 3,600 3,718
Provision for losses on loans - - 107 80
Noninterest income 234 295 464 343
Noninterest expense 3,756 2,068 2,097 2,079
----- ----- ----- -----
Income (loss) before taxes (1) 1,790 1,860 1,902
Federal income taxes (10) 609 638 647
------- ------ ------ ------
Net income (loss) $ (11) 1,181 1,222 1,255
====== ===== ===== =====
Basic earnings per share (2) $ 0.00 0.31 0.32 0.33
====== ====== ====== ======
Diluted earnings per share (2) $ 0.00 .29 .30 .31
====== ====== ====== ======
- ----------------------------------
(1) The total of the four quarterly amounts may not equal the full year
amount due to rounding.
(2) After giving effect to a three-for-two stock split, declared on July 16,
1998 and distributed on August 17, 1998.
(Continued)
38
41
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) PARENT COMPANY
Condensed parent company only financial information as of and for the
years ended June 30, 1998 and 1997, follows:
Condensed Statements of Financial Condition 1998 1997
------------------------------------------- ---- ----
Cash and amounts due from depository institutions $ 27,949 51,541
Prepaid expenses and other assets 621,904 364,730
Investment in subsidiaries, at equity in underlying
value of net assets 30,559,036 26,527,063
----------- -----------
Total assets $31,208,889 26,943,334
=========== ===========
Notes payable $ -- 600,000
Accrued expenses and other liabilities 179 69,918
----------- -----------
179 669,918
Stockholders' equity 31,208,710 26,273,416
----------- -----------
Total liabilities and stockholders' equity $31,208,889 26,943,334
=========== ===========
Condensed Statements of Operations 1998 1997 1996
---------------------------------- ---- ---- ----
Income
Mortgage banking activities $ 421,344 493,440 488,814
Expenses
Interest expense 7,758 70,136 92,513
General and administrative 266,287 255,804 234,063
---------- ---------- ----------
274,045 325,940 326,576
---------- ---------- ----------
Income before federal income
taxes and equity in undistributed
net income of subsidiaries 147,299 167,500 162,238
Federal income taxes 50,266 57,146 55,160
---------- ---------- ----------
Income before equity in
undistributed net income of
subsidiaries 97,033 110,354 107,078
Equity in undistributed net income of
subsidiaries 4,830,873 3,536,485 3,679,078
---------- ---------- ----------
Net income $4,927,906 3,646,839 3,786,156
========== ========== ==========
(Continued)
39
42
PVF CAPITAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Statements of Cash Flows 1998 1997 1996
---------------------------------- ---- ---- ----
Operating activities
Net income $ 4,927,906 3,646,839 3,786,156
Equity in undistributed net income
of subsidiaries (4,830,873) (3,536,485) (3,679,078)
Other, net (326,913) 50,443 (206,134)
----------- ----------- -----------
Net cash provided by (used in)
operating activities (229,880) 160,797 (99,056)
----------- ----------- -----------
Investing activities
Investment in PVF Holdings Inc. (301,100) -- --
Purchase of servicing portfolio -- -- (2,154,535)
Net cash used in investing activities (301,100) -- (2,154,535)
Financing activities
Proceeds from notes payable -- -- 1,200,000
Repayment on note payable (600,000) (400,000) (200,000)
Proceeds from exercise of stock options 9,529 -- 25,000
Cash paid in lieu of fractional shares (2,141) (1,349) (1,098)
Dividends received from subsidiaries 1,100,000 300,000 1,154,535
----------- ----------- -----------
Net cash provided by (used in)
financing activities 507,388 (101,349) 2,178,437
----------- ----------- -----------
Net decrease in cash and cash
equivalents (23,592) (59,448) (75,154)
Cash and cash equivalents at beginning of year 51,541 110,989 186,143
----------- ----------- -----------
Cash and cash equivalents at end of year $ 27,949 51,541 110,989
=========== =========== ===========
(19) 401(K) SAVINGS PLAN
Employees who have reached age 18 and have completed one year of
eligibility service are eligible to participate in the Company's 401(k)
Savings Plan. The plan allows eligible employees to contribute up to 7
percent of their compensation, with the Company matching up to 50 percent
of the first 4 percent contributed by the employee, as determined by the
Company for the contribution period. The plan also permits the Company to
make a profit sharing contribution at its discretion up to 4 percent of
the employees compensation.
Participants vest in the Company's contributions as follows:
Years of Service Percent Vested
---------------- --------------
Less than 2 0%
2 but less than 3 20
3 but less than 4 40
4 but less than 5 60
5 but less than 6 80
6 or more 100
The total of the Company's matching and profit sharing contribution cost
related to the plan for the years ended June 30, 1998, 1997, and 1996 was
$72,602; $76,300; and $68,100, respectively.
40
43
NOTES
44
Park View Federal Savings Bank
Office Locations and Hours
MAIN OFFICE LOBBY PARMA OFFICE
2618 N. Moreland Blvd. Mon., Tue., Thurs...........9:00 a.m. - 4:30 p.m. 7448 Ridge Road
Cleveland, Ohio 44120 Fri.........................9:00 a.m. - 5:00 p.m. Parma, Ohio 44129
(216) 991-9600 Sat.........................9:00 a.m. - 1:00 p.m. (440) 845-5300
Closed Wednesday
DRIVE-UP WINDOW
Mon., Tue., Thurs., Fri.....9:00 a.m. - 5:00 p.m.
Sat.........................9:00 a.m. - 1:00 p.m.
LA PLACE OFFICE LOBBY LAKEWOOD-CLEVELAND OFFICE
2111 Richmond Road Mon., Tue., Thurs...........9:00 a.m. - 4:30 p.m. 11010 Clifton Blvd.
Beachwood, Ohio 44122 Fri.........................9:00 a.m. - 5:30 p.m. Cleveland, Ohio 44102
(216) 831-6373 Sat.........................9:00 a.m. - 1:00 p.m. (216) 631-8900
Closed Wednesday
DRIVE-UP WINDOW
Mon., Tue., Thurs...........9:00 a.m. - 5:00 p.m.
Fri.........................9:00 a.m. - 6:00 p.m.
Sat.........................9:00 a.m. - 1:00 p.m.
BAINBRIDGE OFFICE LOBBY MACEDONIA OFFICE
8500 Washington Street Mon., Tue., Wed., Thurs.....9:00 a.m. - 4:30 p.m. 497 East Aurora Road
Chagrin Falls, Ohio 44023 Fri.........................9:00 a.m. - 5:30 p.m. Macedonia, Ohio 44056
(440) 543-8889 Sat.........................9:00 a.m. - 1:00 p.m. (330) 468-0055
Drive-Up Window
Mon., Tue., Wed., Thurs. ...9:00 a.m. - 5:00 p.m. MAYFIELD HEIGHTS OFFICE
BEDFORD HEIGHTS OFFICE Fri.........................9:00 a.m. - 6:00 p.m. 1456 SOM Center Road
25350 Rockside Road Sat.........................9:00 a.m. - 1:00 p.m. Mayfield Hts., Ohio 44124
Bedford Hts., Ohio 44146 (440) 449-8597
(440) 439-2200
MENTOR OFFICE
CHARDON OFFICE 6990 Heisley Road
408 Water Street Mentor, Ohio 44060
Chardon, Ohio 44024 (440) 944-0276
(440) 285-2343
ADMINISTRATIVE OFFICES
25350 Rockside Road
Bedford Hts., Ohio 44146
(440) 439-6790
Monday - Friday
9:00 a.m. - 5:00 p.m.
45
PVF CAPITAL CORP.
BOARD OF DIRECTORS
JAMES W. MALE
Chairman of the Board
JOHN R. MALE
President and
Chief Executive Officer
ROBERT K. HEALEY
Retired
STANLEY T. JAROS
Partner
Moriarty & Jaros, P.L.L.
CREIGHTON E. MILLER
Partner
Miller, Stillman & Bartel
STUART D. NEIDUS
Executive Vice President and
Chief Financial Officer
ESSEF Corporation
ROBERT F. URBAN
Retired
EXECUTIVE OFFICERS
JAMES W. MALE
Chairman of the Board
JOHN R. MALE
President and
Chief Executive Officer
C. KEITH SWANEY
Vice President and Treasurer
JEFFREY N. MALE
Vice President and
Corporate Secretary
PARK VIEW FEDERAL SAVINGS BANK
EXECUTIVE OFFICERS
JOHN R. MALE
President and
Chief Executive Officer
C. KEITH SWANEY
Executive Vice President and
Chief Financial Officer
JEFFREY N. MALE
Senior Vice President
CAROL S. PORTER
Corporate Secretary
EDWARD B. DEBEVEC
Treasurer
OTHER OFFICERS
ANNE M. JOHNSON
Vice President
Mortgage Loan Servicing
ADELINE NOVAK
Vice President
Human Resources
ROBERT J. PAPA
Vice President
Construction Lending
JOHN E. SCHIMMELMANN
Vice President
Savings Administration
KENNAIRD H. STEWART
Vice President
Commercial Real Estate Lending
ROBERT D. TOTH
Vice President
Data Processing
GENERAL INFORMATION
INDEPENDENT
CERTIFIED ACCOUNTANTS
KPMG Peat Marwick LLP
1500 National City Center
1900 East Ninth Street
Cleveland, Ohio 44114
GENERAL COUNSEL
Moriarty & Jaros, P.L.L.
30195 Chagrin Boulevard
Suite 110 North
Pepper Pike, Ohio 44124
TRANSFER AGENT AND REGISTRAR
Fifth Third Bank
Fifth Third Center
38 Fountain Square
Cincinnati, Ohio 45263
SPECIAL COUNSEL
Housley Kantarian & Bronstein, P.C.
1220 19th Street, N.W., Suite 700
Washington, D.C. 20036
ANNUAL MEETING
The 1998 Annual Meeting of
Stockholders will be held on
October 19, 1998 at 10:00 a.m.
at the Cleveland Marriott East,
3663 Park East Drive, Beachwood, Ohio.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1998 as filed with the
Securities and Exchange Commission will be furnished without charge to
stockholders upon written request to the Corporate Secretary, PVF Capital Corp.,
2618 N. Moreland Boulevard, Cleveland, Ohio 44120.
46
[PVF - LOGO]
CAPITAL CORP.
2618 North Moreland Blvd., Cleveland, Ohio 44120, (216) 991-9600